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Shopsteward Volume 26 No. 2

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Media Centre  |  COSATU Speeches

Zwelinzima Vavi, COSATU Deputy General Secretary on the the 1998 / 1999 budget

7 March 1998

The current fiscal policy and monetary policy of the country can be at best be described as a successful operation with dead patients. The operation has been successful in that the markets are extremely happy and positive about the fact that corporate taxes has been slashed to 12,5%. The undertaken that is carried through the Medium Term Expenditure Framework to keep the country taxes at 25% of the GDP is well in place. At the same in the eight years before 1997/1998 budget taxes on individuals have been increasing at the average of 17%. The exchange controls are on their way out. Very soon companies will just willy-nilly move their money of our economy. The government deficit target is on track and may just reach the targeted 3% of the GDP in year 2000. The inflation according to the latest Central Statistical Services data is at 4% and has broken the record of 27 years. The interest rates remain extremely high and of late to the dislike of the captains of industry. The productivity has been on the rise in most of the sectors. The shareholders and senior managers continue in most cases continue to smile to the bank from the mounting accumulating profits. Indeed the operation has been extremely successful.

The patient is dead or in a critical condition in the intensive care unit. In this case the patients are employed workers, unemployed workers, the poor, students and universities and black people who are looking at the success government policies to deal with deep scars of apartheid. Unemployed is rising fast with thousands of workers loosing their jobs. Last year alone no less than 116 000 workers lost their jobs. Now there is a talk of carrying through one of GEARís dictates of slashing 300 000 public sector workerís jobs. The unemployed have no hope of getting decent employment opportunities. This crisis is despite attempts to the contrary standards of living of the poor has not improved and has worsened for those who lost their jobs. The income redistribution has not taken place in the scale envisaged by the RDP. Whilst historic progress has been made in the area of water provision, health, telecommunications, workerís rights, education transformation and land redistribution the poverty is still wide spread in particular in rural areas. The private sector led housing delivery has left much to be desired. There is no attempts to move into a public transport system, it appears that we shall be a taxi nation with all that goes with it.

On the 11 March 1998, the Minister of Finance will be delivering his budget speech in parliament. Business community will be looking at whether their victories will be consolidated and their position of power entrenched. They will be looking as to whether the deficit target is being achieved and at further company tax cuts.

On the other hand workers, the poor, pensioners, the disabled, students, health workers, the police, etc. will be looking at whether this time around the social deficit created by years of apartheid misrule will be addressed. The working people will be crossing their fingers on whether this rare opportunity will be used to entrench privileges of the few or there shall be real and substantial redistribution of income and wealth. The homeless will be looking on whether the budget will provide them with decent houses instead of smaller than match box houses. The unemployed will be looking on whether they now going to see more concrete steps on job creation. The teachers will be looking on whether their jobs are secured and whether the country will move to manageable pupil and teacher ratios. The overloaded nurses and doctors in hospitals like Johannesburg hospital will be expecting that their plight be addressed. Provincial health ministries will be looking at whether they will now have equipment and staff for their empty new clinics. The list goes on. The provincial and local governments will be looking at whether a further extremely tight belting programme will continue. Will the budget for the first time also social deficit?

The long held demand of COSATU is for a "Peopleís budget". To us the budget should be used as the spear of the RDP. COSATU focus is on two key aspects, which should guide the alliance strategic approach to the budget, firstly the budgetís parameters should be appropriate rather than arbitrary and secondly the budget process should be transparent, participatory and democratic. The appropriate parameters for the budget should not be a narrow discussion on the proís and conís of the governmentís macroeconomic framework called Growth Employment and Redistribution. Appropriate parameters linked to the macroeconomic stability and budget parameters must be developed. The Medium Term Expenditure Framework, which was introduced last year, does not take this debate forward. In principle COSATU supports the introduction of METF as it will afford us an opportunity to plan in advance so that the kind of rollovers of expenditure which have been a hallmark of the first years of the government should be dealt with. The METF the very tool designed to help with reprioritisation of the budget towards RDP priorities and to assist in medium term expenditure planning, is rendered problematic by GEARís commitment to rigid and arbitrary targets of limiting budget deficit and revenue collection. The manner in which GEAR restricts medium term expenditure can be explained in the following manner:

  • When government spends more than it collect in taxes, the result is a budget deficit. This is represented by equation: deficit = expenditure Ė revenue (or expenditure = revenue + deficit)
  • GEAR and consequently the METF sets rigid limits on revenue. Deficits are required to be brought down to 4% then 3% of the GDP and revenue collection is required to be at 25% of the GDP. Expenditure is squeezed between deficit reduction targets and low tax ceilings into increasingly narrow parameters. Therefore, expenditure levels (equal to revenue + deficit, both fixed as a percentage of the GDP) will de dictated by the GEAR parameters and will be dependent on GDP growth rates.

Planned use of budget deficits to finance expenditure is not inherently unsustainable. Internationally, it is used as a standard tool of economic planning. It is worth noting that even the World Bankís three policy scenarios for South Africa concluded that the rise in fiscal deficit to 12% of the GDP is sustainable. This is because the higher growth pattern will gradually generate more public savings such that by the year 2000 the country will experience fiscal surplus. (World Bank, Paths to economic growth, November 1993)

Studies of South African tax indicate that the country is under-taxed by about 3% of the GDP. The lie repeated so frequently by the local big business will only fool those sections of the media that are prepared to swallow the lie without a question. The question that the macroeconomic and budget should be addressing is a more progressive tax structure. In 1970 company taxes yielded half of the total government expenditure, by 1995 the corporate tax contribution only makes 14% of the tax revenue. At the same period personal tax yielded 18% of the GDP and by 1995 it was at 42%. The regressive VAT system made this worse. The last budget speech and one-sided reduction of taxes of corporate taxes without any consideration of reducing tax burden on the personal income tax has worsened the situation.

The above policy is at the core of COSATUís rejection of GEAR. The combined effects of this policy that is demanded by capital on the government has now clearly limited our capacity to deal with the social deficit. The 1997/1998 budget saw a cut of 4,5 to 5% in the national government social spending. Education saw a cut of 6,2%. All other important key strategic areas of the RDP saw minimum real increases. All those who have been observing the recent events like the chaos in Johannesburg hospital, the closure of eight hospitals in Gauteng, the threat on teachers jobs, the threat to the public sector workers jobs, the failure to pay overtime to prosecutors, etc. can traced to this disastrous fiscal and monetary policy. The key question is have we not learnt from our recent social and economic woes? Are we going to close our eyes to this reality and continue to march in order to reach first at the bottom?

COSATU on its part will continue to engage the alliance in particular the ANC on these differences. We think that there is already a great deal of movement towards closing of differences within the Alliance if one look at economic resolution of the ANC Mafikeng conference and the recent Lekgotla statement, which clearly point to the need to review the deficit target.

We inherited a budget process from the undemocratic and non-transparent apartheid region. One of the biggest challenges we face is how these traditions can be changed including on the budget process. The constitution commits the government to democratic practices, it outlines process through which the budget becomes a law and it requires legislation that will empower the parliament to amend the budget and money bills as proposed by the Minister of Finance.

The challenge we face is how the separation of powers between parliament and the executive including creation of a meaningful space for public participation in policy development can be creatively managed to stay within the spirit of the constitution. This requires that clear strategies be developed on how our organisational structures should relate to the structures of governance. Within this a clear strategic and dynamic role for the alliance and ANC constitutional structures should be developed to redirect policy through complex pressures which are brought to bear on the Department of Finance.

COSATU in its submission to the standing committee on finances argued for a complete break with the past secretive and centralised budget process inherited from apartheid. We demanded an open and participative process. The slogan "the people shall govern" mean that parliament, as the elected representatives of the people should now and in future be empowered to play an effective oversight role with regards to the budget. A dynamic interaction between parliament and the organs of peopleís power like COSATU should be developed to give a meaning to the cries of the people who gathered in Kliptown and adopted the Freedom Charter. The RDP calls on a democratic government to "end unnecessary secrecy in the formulation of the budget" The RDP goes further to call on the establishment of a "parliament budget office with sufficient resources and personnel to ensure efficient democratic oversight of the budget" (at 6.5.8)

The process leading to the drafting of coming 11 March 1998 budget has not been significantly different from how the apartheid have managed the process. There is still much lack of transparency and parliamentís role is limited to symbolic comments and holding of hearings that will not make any difference to the budget. We pointed this major discrepancy at our last submission to parliament. We pleaded with them to initiate steps within their powers to effect changes demanded by the constitution and the RDP. We said that unless that this lack transparency is addressed and that legislation is enacted to give a meaningful role to parliament, we have no intention of making another submission just for the sake of a symbolic routine. We stand by what we said then. COSATU shall make no submission to standing committee on public finances for this budget unless the provisions of the constitution on a transparent process have been fully been operationalised. We would rather focus on using the scarce and limited resources we have on areas where we know that they have a possibility of achieving desired results.